Power of Sale Procedure: What Happens If a Private Borrower Fails to Pay the Full Amount Due?

When a private borrower secures financing through a private mortgage lender, they agree to specific repayment terms outlined in the mortgage contract. If they fail to pay the full amount due by the end of the term, the lender has legal options to recover the outstanding debt. One of the most common enforcement methods in Ontario and other common-law provinces in Canada is the Power of Sale.

1. What Is Power of Sale?

Power of Sale is a mortgage enforcement process that allows the lender to sell the property to recover the outstanding loan balance without going to court. It is faster and more cost-effective than foreclosure, making it the preferred option for lenders in provinces like Ontario, Newfoundland, and New Brunswick.

In a Power of Sale, the lender does not take ownership of the property but has the legal right to sell it to recover their debt. Any surplus funds from the sale, after covering the mortgage debt and legal costs, are returned to the borrower.

2. When Does Power of Sale Begin?

A Power of Sale process typically begins when the borrower fails to pay the full amount due at the end of the contract and is in default. The lender can trigger Power of Sale under the following conditions:

• ✅ Missed Payments – If the borrower fails to pay off the principal, interest, or penalties by the agreed-upon due date.
• ✅ Breach of Mortgage Terms – If the borrower violates other contractual obligations (e.g., failure to pay property taxes or maintain insurance).
• ✅ Demand Letter Issued – The lender sends a demand letter requiring full payment within a set timeframe.
• ✅ No Resolution – If the borrower does not refinance, sell the property, or make arrangements to pay, the lender proceeds with Power of Sale.

3. The Legal Steps in a Power of Sale Procedure

Once the borrower is in default, the lender must follow specific legal procedures to enforce a Power of Sale. Here’s how the process unfolds:

Step 1: Issue a Notice of Sale 📩 The lender serves a Notice of Sale to the borrower and all registered parties (e.g., second mortgage lenders, lien holders). This document states:

• ✔ The amount owed and the default details.
• ✔ A redemption period (usually 35-45 days) allowing the borrower to pay the debt and stop the sale.
• ✔ The lender’s intent to sell the property if payment is not made.

👉 Borrower’s Option: If the borrower pays the full amount within this period, the enforcement stops. If not, the process continues.

Step 2: Expiry of Redemption Period ⏳ Once the redemption period expires without payment, the lender gains the legal right to sell the property. At this stage:

• ✔ The borrower loses their automatic right to redeem the mortgage.
• ✔ The lender cannot sell the property to themselves—they must attempt to obtain fair market value.

👉 Borrower’s Option: The borrower may still negotiate with the lender or seek legal action if they believe the sale is unfair.

Step 3: Selling the Property 🏡 The lender lists the property for sale, typically through a real estate agent or public auction. They must:

• ✔ Make reasonable efforts to sell at fair market value.
• ✔ Disclose the sale process to interested parties.
• ✔ Avoid conflicts of interest, ensuring the sale benefits all involved.

👉 Borrower’s Rights: If the borrower believes the sale price was too low or rushed, they may challenge the sale in court.

Step 4: Debt Settlement and Distribution of Funds 💰 Once the property is sold:

• ✔ The lender recovers the mortgage balance, legal fees, and selling costs.
• ✔ Any surplus funds go to the borrower (if any remain after debts are cleared).
• ✔ If the sale proceeds do not cover the full debt, the lender may seek a deficiency judgment to recover the shortfall.

👉 Borrower’s Risk: If the sale price is lower than the total mortgage debt, the borrower may still owe money and face legal action.

4. What Happens If a Borrower Refuses to Allow the Sale?

In some cases, a defaulting borrower actively obstructs the Power of Sale process, refusing to vacate the property or preventing access for sale preparations. In such situations, lenders have legal remedies:

• A. Obtaining a Writ of Seizure and Sale If the borrower refuses to cooperate, the lender may seek a Writ of Seizure and Sale through the Rules of Civil Procedure and the Execution Act. This allows the sheriff to seize and sell the property on behalf of the lender.

• B. Court Orders for Possession If the borrower remains in the property and refuses to leave, the lender can apply for a writ of possession to legally remove the borrower and proceed with the sale. Courts have upheld lenders' rights in cases such as Alleghe Mortgage Fund Ltd. v. Winona Park Towns Ltd., where a borrower’s objections were dismissed, allowing the lender to complete the sale.

👉 Legal Takeaway: Borrowers cannot simply refuse to allow the sale—the lender has legal mechanisms to enforce mortgage rights and recover the property for sale.

5. Limitations of a Power of Sale: The Lender’s Position in the Transaction

Lenders must comply with strict legal requirements when executing a Power of Sale. According to 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd., 2024 the Execution Act does not grant lenders superior rights beyond allowing the sheriff to sell the debtor’s interest in the property. This means:

• ✅ The lender can only recover what is owed, and cannot claim more than the outstanding debt, fees, and legal costs.
• ✅ The property is sold subject to existing liens, mortgages, or other encumbrances—lenders cannot bypass prior financial obligations on the property.
• ✅ If the sale price exceeds the amount owed, the borrower is entitled to the remaining equity after debts are paid.

👉 Lender’s Takeaway: While Power of Sale allows lenders to recover debts efficiently, they must ensure compliance with all procedural laws to avoid legal challenges.

Final Thoughts

Power of Sale is a serious legal process that allows lenders to recover their funds when a borrower fails to pay the full amount due. Unlike foreclosure, borrowers still have rights, including the potential to stop the sale, negotiate, or receive surplus proceeds. However, if a sale does not fully cover the debt, the borrower may still be liable for the remaining balance.

📌 If you are facing mortgage enforcement, act early—exploring legal and financial options before it’s too late is critical to protecting your assets.

🔗 Need legal guidance? Contact a mortgage enforcement expert today!

#PowerOfSale #MortgageEnforcement #RealEstateLaw #ForeclosurePrevention #PrivateMortgage #HomeOwnership #DebtSolutions #LegalAdvice #MortgageHelp #FinancialProtection